North Korea Adding a Pinch Of Capitalism to Its Economy

By HOWARD W. FRENCH

Published: August 9, 2002

KUMHO, North Korea, Aug. 8—
After a half-century of economic control so complete that even cash had fallen into disuse, North Korea has begun introducing the most significant liberalization measures since the start of Communist rule, diplomats here said.

The new measures center on very large wage increases for workers and even larger increases in prices for everything from food and electricity to housing. There are also reports that food rationing coupons are being eliminated and that state subsidies for many failing industries have been halted.

For some analysts of this long-isolated bastion of severe Communist orthodoxy, the changes are inspired by China's free market reforms of the late 1980's. Others draw parallels with Vietnam, whose economic reforms have been less bold.

But analysts agree that the new steps are unlike anything this government has tried before, and may even represent the first moves toward an economy that mixes capitalism and socialism.

Operating in its typically secretive manner, the government of Chairman Kim Jong Il has issued no major statements explaining the changes. But according to Western diplomats who live in the capital, Pyongyang, North Korean workers confirm that they have received as much as a 20-fold increase in their wages, while prices for commodities, including rice, have increased by as much as 30 times since the measures were introduced in July.

Although it is not clear how far the government is willing to go, the measures appear intended to bring North Korean prices more in line with world prices.

''This is a very important break with the past,'' said a Western diplomat who had attended a briefing on the economy by the government. ''Until now, nobody relied on money. There were deep scarcities, but the government provided for most needs for free, and when they wanted to increase production of something they would rely on banners and slogans, not rewards.''

Diplomats from a handful of Western countries who have been posted in Pyongyang since the beginning of a diplomatic opening by North Korea in the last year or so say that the political dimensions of the recent changes are at least as important as the economic details.

North Korea is the world's only Communist country with hereditary leadership. The man who established the regime in 1948, Kim Il Sung, and his son Kim Jong Il, the current leader, have traditionally been revered as near gods. For a leadership that has never acknowledged failings in its policies or tolerated any challenges to them, the recent economic measures, combined with an equally striking shift in diplomatic tack, suggest a new willingness to break with past practice.

''It is something like wisdom to say that we've been on the wrong path for 50 years, even if they don't know the solution to their problems yet,'' said one senior Western diplomat. ''They are no longer going around pretending that this is an infallible leadership that has all the answers, which in itself is a monumental change.''

However, experts on the country's shrunken economy say the recent actions do little to address disastrously fallen output in both agriculture and industry.

''North Korea has essentially functioned without a currency for the last 25 years,'' said Nicholas Eberstadt, a Korea expert at the American Enterprise Institute, speaking by telephone from Washington. Reintroducing cash into the economy ''is a necessary, but not sufficient step to joining the world economy.''

''You might say they've left Pluto and reached Mars,'' he added. ''This sounds like very central change, and not tinkering at the margins, but it is still a long ways to Earth.''

A midlevel North Korean official, interviewed here at this desolate port city in a region of the northeast that was the country's thriving industrial belt until the collapse of the Soviet bloc and its trading system, denied that systemic changes were under way.

''We are only trying to improve our socialism,'' the official said laconically. He spoke during a tour of the construction site of two nuclear reactors being built here by an international consortium as part of an arms control agreement.

The need for major reform cried out to foreign visitors who spent the day here inspecting the nuclear plant site. The sole North Korean vehicle in evidence during an entire day was a rickety old locomotive that creaked through the town. A musty gift shop contained little more than ginseng products and shoddy trinkets. Fishing boats do not even go out from here in large numbers anymore because of fuel shortages and lack of equipment to freeze the catch.

People who had seen the nuclear construction site previously said that crisp white uniforms had been flown in specially for the soldiers and officers, and predicted they would be collected and sent back to wherever they came from at the end of the day. The purpose of the exercise, one regular visitor said, was to have the officers appearing immaculate before the visiting Western press.

Diplomats who made the 10-hour drive to the nuclear site from Pyongyang said that much of the route they traveled was along rutted dirt roads.